Walk through any Indonesian city, and the commerce hits you before almost anything else. Not the formal kind, not malls or office towers, but something older and more intimate. In Tanah Abang, Jakarta’s vast textile market, tens of thousands of traders work in a building that functions less as a marketplace than as a small civilisation – layered, hierarchical, and governed by codes of trust and obligation that outsiders cannot easily read.

This is the ecosystem that built modern Indonesia, a nation whose vast economy is organised around moving goods, and increasingly vulnerable as a result.

The Indonesian trader is the country’s main protagonist and its moral centre. Anthropologist Clifford Geertz, writing from the markets of East Java in the 1960s, saw in the peddlers, the merchant class, a figure as central to the Indonesian social imagination as the yeoman farmer was to Jeffersonian America. Becoming a successful middleman was ambition in its purest form. Generations of Indonesians grew up understanding that real prosperity meant positioning yourself cleverly in the chain between the person who made something and the person who wanted it. For most of modern Indonesian history, that understanding held.

The word pengusaha, most commonly understood as an equivalent of ‘entrepreneur’, is defined in the national dictionary not as someone who creates a venture or brings something new into existence, but simply as a person who works in trade. To become a pengusaha remains, for most Indonesians, the highest economic aspiration – higher than being a professional or salaried worker, the karyawan – and yet the word carries no implication whatsoever of making anything new. Indonesians who accumulate enough capital to stop working for someone else almost invariably move into trade.

Why did Indonesia become, and then remain, a nation of traders? The Dutch built their colonial economy around extraction, and extraction required intermediaries. The Dutch East India Company’s system of forced deliveries depended on commercial go-betweens to move goods from plantation to port. Chinese-Indonesian merchant networks became the operational middle layer of colonial commerce. When independence came, the architecture outlasted the colonisers.

The new Indonesian state inherited the colony’s economic grammar as surely as it inherited its roads and railway lines. Under the New Order regime, this inheritance hardened into what the historian Richard Robison called ‘politico-bureaucratic capitalism,’ a system in which rents from controlling distribution mattered far more than returns from production.

What emerged was a self-reinforcing imbalance. Trading success attracted more trading investment, and the best entrepreneurial talent gravitated towards distribution and brokerage, leaving production starved of initiative. Government policy, reliably captured by the interests it was supposed to regulate, protected margins through licensing and tariffs but never built the conditions manufacturers needed to compete.

Indonesia’s vast informal economy, estimated at roughly 60 per cent of total employment, was a direct expression of this logic rather than a failure of it. The country has 66 million micro, small, and medium enterprises, accounting for 99 per cent of all business units, absorbing roughly 97 per cent of the workforce, and wholesale and retail trade remains by far the largest category among them. The scale is staggering, but what it describes is an economy that absorbed labour, distributed opportunity, and generated enough prosperity to sustain a growing middle class without ever building the productive capacity that the rest of the region understood as the foundation of economic growth.

For the trader, the entire business model rested on knowing something the other person did not: where the goods actually were; what they cost at the source; which supplier could be trusted and which could not. That knowledge took years to accumulate, dense networks of relationships and the skill to maintain them, and then the skill to deploy them. The margin the trader extracted was a return on an information advantage that was real and hard-won.

Everything changed with the rise of e-commerce platforms, which aggregate thousands of suppliers into a single searchable interface and display their prices simultaneously. Knowledge that once took a trader an entire career to accumulate is now available to anyone with a smartphone in thirty seconds. Yet the deeper problem is not even the price transparency, damaging as that is. Factories and importers who once sold only to first-hand wholesalers now sell directly to consumers on e-commerce platforms, at prices below what a traditional trader pays at the source. The trader who tries to adapt by moving online discovers that he is already competing against the person who supplies him, and losing the battle.

When commerce ran through intermediary chains, each link in the chain spent money where they lived. E-commerce collapses those links into a single transaction between a factory in a Javanese production town or a warehouse in Jakarta and a consumer anywhere in the archipelago. Capital that once circulated through regional markets now flows directly to the few production centres and fulfilment hubs that supply the platforms, almost all of them on Java. The towns that sustained themselves as nodes in the chain find that when the traders disappear, so does the entire local economy their presence once underwrote.

Politically, the consequences are already visible. The government’s 2023 ban on social commerce transactions is a clear example of a democratic system responding to the concentrated pain of a large constituency of voters. The move was widely understood as a concession to the political weight of threatened traders following the e-commerce platform TikTok Shop’s explosive growth. An attempt to restrict, slow and protect is entirely legible as politics but, as economics, it will not work. The asymmetries that sustained the intermediary economy are gone, and no licensing regime or import restriction will bring them back. 

Indonesia’s entrepreneurial energy still has to flow somewhere. The answer that development economics has always given, from Gerschenkron to Studwell, is to make things. As a theory of escape, it remains coherent. As a practical proposition in this decade, it runs into the most formidable obstacle facing late-industrialising economies.

For most of the 20th century, the path from poverty to prosperity ran through the factory. Japan walked it first, then South Korea and Taiwan, then China. Each country entered the low end of global manufacturing, accepted thin margins on simple goods, and used export competition to build capabilities. The ladder was there because the room was never quite full. Each new entrant found niches that the previous generation of industrialisers had vacated as they grew more sophisticated, and those niches provided just enough space to learn, to accumulate, and to eventually compete.

China climbed that ladder and then kept going. The productive capacity that China has built across textiles, electronics, and light manufacturing is so vast, so cost-efficient, and so deeply integrated into global supply chains that the interstices which late developers used as their entry points have effectively closed. A developing country entering manufacturing today encounters a Chinese industrial ecosystem that has spent decades compressing costs, building logistics, and accumulating the kind of tacit productive knowledge that takes generations to develop and cannot be conjured quickly regardless of how sound the policy environment is.

Turkish Economist Dani Rodrik coined the term ‘premature deindustrialisation’ to capture the tendency of today’s developing economies to reach a manufacturing peak at far lower income levels than earlier industrialisers. Indonesia’s economic structure reflects this condition with particular acuity. Its manufacturing share of GDP peaked around the turn of the century and has been declining ever since, meaning the country is deindustrialising from a base it never fully built.

The country’s export basket makes the consequences painfully legible. The fourth most populous country in the world, with over 270 million people and a median age under thirty, Indonesia mainly sells coal, palm oil, nickel, and the intermediate goods these raw materials feed into, overwhelmingly destined for Chinese industrial processing. What Indonesia digs up and ships out returns as finished manufactured goods flowing back into Indonesian markets, undercutting the very traders who built the domestic economy. The country is simultaneously a raw material supplier to Chinese industry and a consumer market for its output, a position that sits closer to a colonial economic logic than to anything development literature would recognise as a viable path forward.

The same e-commerce platforms dismantling Indonesia’s intermediary economy are, in many product categories, the mechanism through which this subordination becomes visible in everyday life. The entrepreneurial energy that can no longer make a living from moving goods has nowhere obvious to go, because building a domestic industry now means entering a market whose conditions were set long ago, by someone else, at a scale that redefines what competitiveness even means.

There is a version of this story that ends with optimism, built on Indonesia’s demographic dividend, its oft-cited vibrant entrepreneurial culture, and the sheer size of its domestic market. Indonesian policymakers reach for these arguments regularly, and they are not exactly wrong, just insufficient. A large, youthful population is an asset only if the economy can absorb it productively. The real question is whether a productive Indonesian economy can still be built at all, or whether it now exists only in fragments, in the narrow corridors that Chinese industrial saturation has yet to reach or does not consider worth occupying.

The intermediary economy that absorbed and organised Indonesian ambition for generations belongs to the past. For the traders who built their lives within it, the disruption they now face exceeds any government band-aid. This is as much a cultural question as an economic one. For generations, the trader embodied Indonesia’s answer to what a good life looked like and how an ordinary person might build one. Yet that answer is dissolving faster than anything has emerged to replace it.

Indonesia is arriving late at a question that most developing countries have eventually had to confront. But the environment is far more crowded than it once was. The decades that Indonesians spent perfecting the art of not making things were precisely the decades when entering the business of making things was becoming increasingly critical.